House Defeats Bailout Measure 228-205

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If approved, the Treasury Department would have had the sole power of purchasing the $700 billion of the bankrupt mortgages. Treasury Secretary Henry M. Paulson Jr. and President Bush expressed strong disappointment with the House's rejection of the legislation that congressional leaders urged to be passed immediately.

The Washington Post quotes Paulson that he desperately wants the legislation to pass and believed that the rejected plan was sound: ''We've got much work to do, and this is much too important to simply let fail. We need to put something back together that works. He said the rescue plan he put forward ''is a plan that works.''

Breaking down the House vote by party lines, 95 Democrats went against Pelosi and Frank in opposing the legislation. 133 Republican House members opposed Rep. Roy Blunt's urging that the bill be approved today. 140 House Democrats voted for the measure along with 65 Republicans.

House Republican leaders blamed a passionately partisan address by Speaker Nancy Pelosi at the end of today's debate for the failure of the measure. House Minority Leader John Boehner said that his fellow Republican colleagues were angry for having to vote for a bill like this. However, Rep. Boehner voted for it as well as Reps. Pelosi and Blunt.

Rep. Blunt also blamed Pelosi's speech for turning off some conservatives. The hard-core conservatives within the Republican House caucus were the major group of the defectors within the 133 members who opposed the legislation.

Rep. Barney Frank is the chairman of the House Financial Services Committee and was involved in the negotiations with the House Republican leaders and Paulson. He reacted to Rep. Blunt's assertion of having a dozen more votes to get the bill passed: ''He challenged the GOP to ''give me those 12 people's names, and I will go talk uncharacteristically nicely to them'' to persuade them to vote in the best interests of the nation.''

Pelosi said that she held up her end of the bargain by getting 60 percent of the House Democrats to support a Bush Administration bill. 2/3 of House Republicans opposed the measure.

The two presidential candidates reacted quickly to the bill's defeat: Barack Obama's advisers circulated a quote from Steve Schmidt, who is the chief strategist for John McCain.

The Washington Post quotes Schmidt from his appearance on Sunday's Meet the Press: ''What Senator McCain was able to do was to help bring all of the parties to the table, including the House Republicans, whose votes were needed to pass this.''

McCain blamed Obama and his allies in Congress for infusing unnecessary partisanship in the process.

Obama said that he was convinced that an eventual plan would be passed by the Congress. The Washington Post quotes the Senator from Illinois: ''There are going to be bumps and trials and tribulations and ups and downs before we get this rescue package done. It's important for the American public and the markets to stay calm, because things are never smooth in Congress, and understand it will get done. We are going to make sure that emergency package is put together because it is required for us to stabilize the markets.''

A new vote will happen but nobody is certain when and on what type of bill. The House and Senate won't be in session for the next two days to observe the Jewish holiday of Rosh Hashanah.

Homes are falling into foreclosure at record rates and Paulson or his successor in the next administration would've been given broad latitude to buy assets from any firms at any price. They would've assembled a team of individuals and institutions to manage these failed assets.

Bush and Frank urged lawmakers to pass the bill. The supporters of the bill agree on one fundamental plank: inaction would be worse and consequences would be much more severe.

Pelosi urged her fellow Democratic House colleagues to vote for the measure too. On Sunday, Blunt urged the nearly 30 House Republican members that were retiring to vote for it. James Nussle is a former Republican House member and is now Bush's director of the Office of Management and Budget. He worked the Capitol's halls and the House cloakroom in search of votes.

The liberal members of the Democratic House mainly voted against the measure because they don't want to bail out the Wall Street CEO's and the conservative members of the GOP objected to the bill because they believed it to be economic socialism.

The Washington Post quotes Rep. Jeb Hensarling of Texas saying that it sets a bad precedent of bailing out risky behavior: ''If we lose our ability to fail, we will soon lose our ability to succeed. If we bail out risky behavior, we will soon see even riskier behavior.''

GOP leaders believed that they could get their reluctant colleagues to go along with the measure by including an insurance provision that was negotiated on Saturday. A new federal insurance program would be funded by the banks that would protect the firms against losses from the sagging assets. At least this part of the bill wouldn't cost the taxpayers anything. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Paulson agreed that this provision wouldn't have given any cash to the struggling firms.

The bill would have given Paulson the power to create an Office of Financial Stability within the Treasury Department. The head of this newly created agency would have been subject to Senate confirmation and was required to quickly publish guidelines for identifying, pricing and purchasing the mortgage securities. An independent inspector general would have been appointed to oversee this office as well.

Money for the program would have been released in stages with the Treasury Department receiving $250 billion immediately. Paulson estimated that he would be spending about $50 billion per month. Participating firms would have been required to give the government warrants to buy stock so the taxpayers would receive benefits if the companies were profitable again.

If the government didn't regain all of its money after five years, the president would have been required to submit a plan to recover the money from anyone benefiting from the program. The plan also included a provision to severely tax any corporate executive receiving in excess of $500,000 in compensation.